Circular Supply Chains for a Sustainable Future

By Olimpia Bertarini, Global Purchasing Director, ZAPI GROUP

 

Our planet is facing a momentous challenge: climate change. While the rise of electrification offers a path toward a cleaner future, it also brings concerns about the environmental impact of mining raw materials for batteries and other components, as well as how to dispose of them responsibly.

Circular supply chains address these concerns, offering a closed-loop production, distribution and consumption system that minimizes waste and maximizes resource utilization. These systems embrace the principles of “reduce,” “reuse” and “recycle” from the design phase through end-of-life and beyond. Ultimately, circular supply chains lower carbon emissions, helping to keep our planet green.

 

Obstacles on the Path to Circular Supply Chains

Circular supply chains are gaining traction across industrial and commercial equipment sectors. However, the early stages of development and implementation present some hurdles. First, catering to the varied lifespans of different equipment generations within the same category can be challenging. Second, navigating poor regulations and different practices across various regions adds another layer of complexity. Despite these obstacles, the potential benefits of circularity for resource security and sustainability are driving innovation and change.

 

Original equipment manufacturers (OEMs) may have unique definitions of circularity across various markets and regions. A clear understanding of their needs can benefit manufacturers by allowing them to design components with circularity principles in mind. Setting these principles translates to components that are easier to disassemble and recycle at their end-of-life. For example, an industrial electronics OEM might prioritize extended lifespan, ease of upgrading specific components, or efficient recycling of earth metals. Additionally, understanding the regional regulations that OEMs must comply with ensures manufacturers avoid potential roadblocks across international, national and regional markets. Compliance is especially important for electronics containing hazardous materials, which often have specific disposal regulations.

 

Benefits of a Circular Supply Chain

As electrification grows beyond the automotive industry, so does the need for circular supply chains. The demand for raw materials is growing to new heights, and these resources are not limitless. A circular supply chain can significantly minimize the environmental impact by keeping materials in use for longer and reintroducing them into the loop.

While regulatory mandates undeniably drive companies to adopt circular supply chains, they can be a double-edged sword. An overemphasis on compliance can lead to short-sighted approaches. Additionally, the current lack of standardized measurement for carbon neutrality makes it difficult to compare products and track progress, potentially hindering companies operating across borders. Long-term and successful circularity requires upfront planning and collaboration across the entire supply chain. The European Union’s well-crafted battery directives serve as a prime example of how regulations can drive meaningful and sustainable change.

Circular supply chains are a win-win for businesses and the environment. Not only do they reduce the carbon footprint, but closing the loop can lead to financial savings. Although costs may initially rise due to implementing new processes and infrastructure, these can be offset by reduced reliance on raw materials, avoiding price fluctuations of materials, lower logistics costs due to localization and, in some cases, government incentives like tax breaks.

Circular supply chains also have the potential to fuel innovation, as finding new ways to implement circularity can lead to new products and markets.

 

Addressing Today’s Challenges

Education can overcome initial resistance to the adoption of circular supply chains. Government initiatives, campaigns by non-profits and even company marketing strategies can raise awareness about circularity and its benefits. Governments can also incentivize circular practices. For example, financial incentives or tax breaks can make or break a company’s decision to adopt circular practices.

Companies transitioning to circular supply chains can leverage key strategies for effective implementation. Designing products with the principles of “reduce, reuse, recycle” in mind minimizes waste. Prioritizing the reuse of components and materials lowers reliance on raw materials. Selecting readily recyclable materials for components reduces waste and avoids complex separation processes later on. For example, connectors made from materials that need to be separated before recycling can hinder circularity potential and efficiency.

Developing robust component tracking systems further supports this goal. Access to a component’s usage history allows manufacturers to determine suitability for second-life applications. Nowadays emerging IT technologies enable data visibility along global and complex supply chains. For example, real-time data from Internet of Things (IoT) sensors and AI analysis allow component tracking and recycling process optimization.

 

Supply Chain by Region

Regional disparities can limit the effectiveness of a circular supply chain. For example, the uneven pace at which various regions adopt electrification technologies may lead to a smaller pool of used components and materials available for reuse and recycling. It can also be challenging for companies to navigate an ever-evolving set of regulations related to material use and environmental impact across different regions. A successful circular supply chain requires collaboration between manufacturers, suppliers, consumers and potentially even regulators. Building trust and aligning incentives across this diverse group can be challenging, so it is critical that different stakeholders seek opportunities to increase transparency throughout the supply chain. Increasing collaboration and sharing will help all parties create uniform systems to ensure responsible sourcing and material recovery.

Agreeing on standardized methods for measuring and reporting recyclability and emissions allows progress toward tracking ESG goals and identifying areas that need improvement. Clear and consistent key performance indicators (KPI) are a baseline for measuring suppliers, ensuring they comply with regulations and ESG goals. Companies can leverage third-party platforms to track each component and supplier, providing customers with a snapshot of compliance for each finished product.

Circular supply chains have the potential to revolutionize industrial and commercial equipment sectors. While challenges exist, such as catering to equipment lifecycles and navigating regional regulations, the benefits far outweigh the hurdles. Companies that embrace circularity stand to gain a competitive edge. Standardizing how carbon neutrality and recyclability are measured would further empower businesses operating across markets. Technologies like MRPs and AI can optimize component reuse and recycling within these circular supply chains. These same principles can be applied to industrial electronics manufacturing. By implementing circular supply chains, it’s possible to create a truly sustainable future while keeping our planet clean for generations to come.

 

About Olimpia Bertarini

Olimpia Bertarini serves as the Global Purchasing Director at ZAPI GROUP, leveraging over two decades of expertise in procurement and supply chain management within global organizations. With a diverse background across automotive, appliance and industrial manufacturing sectors, Bertarini is dedicated to developing supply chains that not only reflect company values but also adapt to evolving standards, requirements and customer needs.